Aug. 15 (Bloomberg) -- Standard Chartered Plc, having
settled a New York money laundering probe for $340 million the
day before it was to defend its right to operate in the state,
still faces federal inquiries over claims it helped sanctioned
nations including Iran illegally funnel money through the U.S.

Regulators including the U.S. Treasury, Federal Reserve,
Justice Department and Manhattan District Attorney declined
immediate attempts at a global settlement, said two people
familiar with the matter. A coordinated effort was already in
progress before New York’s unilateral deal, announced yesterday
by financial regulator Benjamin Lawsky, one of the people said.

The agreement doesn’t take into account all of the bank’s
alleged violations, including those involving nations such as
Sudan, said one of the people, who added that September is the
earliest a universal deal may be reached. Shares of the bank
rose as much as 5.1 percent in London today as the New York
settlement removed one pressing risk to the bank.

“From the bank’s perspective, they needed to get this
behind them,” Ann Graham, director of the Business Law
Institute at Hamline University School of Law in St. Paul,
Minnesota, said of the New York agreement. “Had this action
gone forward, the potential was that they could lose their
license to operate in New York, and that would have been
devastating to their operations.”

One analyst estimated that the bank’s loss of its New York
license could have resulted in a 40 percent drop in earnings.

Lawsky’s Order

On Aug. 6, Lawsky issued an order accusing Standard
Chartered of helping Iran launder about $250 billion in
violation of federal laws. He accused the bank of a decade of
deception, including keeping false records, in handling
lucrative wire transfers for Iranian clients. The bank sent them
through its New York unit in so-called U-Turn transactions with
client names omitted to hide their provenance, Lawsky said.

The New York regulator said yesterday in a statement that
“the parties have agreed that the conduct at issue involved
transactions of at least $250 billion.” The $340 million fine
will go to Lawsky’s agency, New York’s Department of Financial
Services, or DFS, and the state.

As part of the settlement, New York said the bank agreed to
install an independent on-site monitor for at least two years
who will report directly to regulators. Examiners from the DFS
will also be placed at the bank.

Individual Regulator

The accord may be the largest ever paid to an individual
regulator as part of a money laundering accord. In June, ING
Bank NV agreed to pay $619 million to settle similar
allegations. That sum was split evenly between a $309.5 million
payment to the federal government and an equal sum to the
Manhattan District Attorney. A person familiar with the New York
probe of Standard Chartered said that Lawsky had sought as much
as $700 million to settle his investigation.

Standard Chartered said in a statement yesterday that “a
formal agreement containing the detailed terms of the settlement
is expected to be concluded shortly.” It “continues to engage
constructively with the other relevant U.S. authorities,” the
bank said.

London-based Standard Chartered generates almost 90 percent
of its profit and revenue in Asia, Africa and the Middle East.
The bank’s shares climbed 4.1 percent to 1,426.50 pence in
London.

The settlement brings to an end a week-long showdown
between Lawsky, 42, New York’s top banking regulator, and
Standard Chartered Chief Executive Officer Peter Sands, 50.

‘Rogue Bank’

Lawsky’s order last week caught the bank’s management team
by surprise. Lawsky alleged that Standard Chartered was a
“rogue bank” that had executed 60,000 dollar-based wire
transactions for Iranian clients from 2001 to 2007.

Standard Chartered’s apparent effort to conceal the
identity of its Iranian counterparties violated the terms of a
2004 settlement between it and the state of New York, in which
the U.K. bank pledged “to ensure compliance with all record-keeping and reporting requirements,” according to the order.

Even before 2001, the order stated, the bank’s general
counsel “embraced a framework for regulatory evasion” by
keeping its New York branch in the dark about Iran transactions.

The bank allegedly accomplished this goal by stripping out
the name of Iranian clients so as not to slow down transfers
that might have to be reviewed for compliance with U.S. economic
sanctions. Those restrictions allowed some transactions but not
others as long as non-Iranian banks were involved on both ends.

Federal Controls

In addition to evading federal controls, Standard Chartered
covered up its plan to grab market share in the Iranian funds
market by falsifying business records, making false statements,
maintaining inaccurate books, obstructing oversight and failing
to report misconduct promptly, according to Lawsky’s order.

From 2004 through 2007, Standard Chartered was subject to
formal action over other regulatory compliance failures related
to the Bank Secrecy Act, anti-money laundering policies and
procedures and regulations of the U.S. Office of Foreign Assets
Control, the main overseer of Iran transactions.

In a 2004 agreement with regulators, the bank promised to
monitor and improve money-laundering controls.

The restrictions of the agreement were lifted in 2007
because the bank provided a “watered-down” report of
compliance, according to Lawsky’s order. Bank statements
“misled” the department into lifting the restrictions of the
2004 agreement, the order stated.

The order cited bank e-mails and other internal documents
to support its accusations.

Bank Obscenity

In one such message, the head of Standard Chartered’s U.S.
unit warned his superiors in London in 2006 that the bank’s
actions could expose it to “catastrophic reputational damage.”
He received a reply referring to U.S. employees with an
obscenity, according to Lawsky’s order.

“Who are you to tell us, the rest of the world, that we’re
not going to deal with Iranians?” a bank superior in London
said, according to the order.

Standard Chartered’s Sands mounted an aggressive defense
against Lawsky, telling investors last week that more than 99
percent of the Iranian transactions were in compliance with
existing U.S. laws.

Lawsky’s order angered U.K. officials, who viewed it as an
attack on London’s status as a financial center. In the U.S.,
regulators including the Treasury Department, the Federal
Reserve and the Manhattan District Attorney complained privately
in published reports that Lawsky’s order was a publicity stunt
that disrupted their own probes of the matter.

Undercutting Enforcement

“I can’t think of another case where there has been such
uniformity among federal regulators undercutting an enforcement
case,” said Neil Barofsky, a former federal prosecutor who
oversaw the U.S. Troubled Asset Relief Program and wrote
“Bailout,” a book that criticizes what he calls the U.S.
government’s lax regulation of Wall Street banks.

By the end of the week, Sands had stopped defending the
bank in public. Instead, its lawyers at Sullivan & Cromwell LLP
had begun negotiating a settlement with Lawsky, according to two
people with knowledge of the matter.

Sands arrived in New York this week to oversee the process.
He signed off on the final agreement just after midday
yesterday, said one of the people, all of whom declined to be
identified because they weren’t authorized to speak publicly.

The agreement between Lawsky and the bank, while referring
to “transactions of at least $250 billion,” doesn’t address
the question of whether they were in compliance with U.S. law.

In a memo to employees today obtained by Bloomberg News,
Sands said the bank’s earlier review identified mistakes, for
which it apologized.

“We have sought to act in the best interests of our
shareholders, clients, customers and staff,” the memo stated.

Other Shoe

Some observers said the bank’s investors are waiting for
the other shoe to drop.

“Investors will be pleased they’ve settled, but it’s not
known if they have to pay more to the other regulators,” said
Christopher Wheeler of Mediobanca SpA in London.

The Department of Financial Services was created in 2011
when New York’s Banking Department and Insurance Department were
abolished. The agency has the power to issue regulations,
investigate and fine financial services companies.

It may also probe alleged criminal activity and refer its
findings to New York’s attorney general for prosecution. Its
jurisdiction over Wall Street, however, puts it in the same
regulatory world as many federal agencies.

“The Federal Reserve continues to work with the other
agencies on a comprehensive resolution,” said Barbara
Hagenbaugh, a spokeswoman for the agency, in response to news of
the settlement.

‘Work Closely’

Dean Boyd, a spokesman for the Justice Department, said the
agency “continues to work closely with our regulatory and other
partners to determine what actions might be appropriate in this
matter.”

And the Treasury Department said in a statement that it
will work “with our regulatory and law enforcement partners to
hold Standard Chartered accountable for any sanctionable
activity that occurred.”

Erin Duggan, a spokeswoman for Manhattan District Attorney
Cyrus Vance, said “banks that violate international sanctions
are not just breaking the law, they are enabling the financing
of terrorist regimes and undermining our collective safety and
security.” She added that the office looks “forward to
continuing to work with our partners on these cases.”

Insurance Costs

The cost of insuring Standard Chartered Bank debt from non-payment declined 12 basis point to 132.1 basis points at 9:11
a.m. in New York, according to data provider CMA, which is owned
by McGraw-Hill Cos. and compiles prices quoted by dealers in the
privately negotiated market.

The contracts have ranged between 125 and 220 this year,
according to the data. Swaps pay the buyer face value in
exchange for the underlying securities or the cash equivalent
should a borrower fail to adhere to its debt agreements. A basis
point equals 1,000 euros a year on a contract protecting 10
million euros ($12.3 million) of debt from default for five
years.

The cost of insuring Standard Chartered Bank debt from non-payment declined 1 basis point to 144 basis points yesterday,
according to data provider CMA. The contracts have ranged
between 122.7 and 195 this year, according to CMA data. Swaps
pay the buyer face value in exchange for the underlying
securities or the cash equivalent should a borrower fail to
adhere to its debt agreements. A basis point on a credit-default
swap protecting 10 million euros ($12.3 million) of debt from
default for five years is equivalent to 1,000 euros a year.

‘Acting Quickly’

“It’s possible that by acting quickly and trying to put
this behind them, the CEO could retain his position,” said
David Kass, a professor at the University of Maryland’s Robert
H. Smith School of Business, of Standard Chartered CEO Sands.
“It puts the issue behind them for today and gets their name
off of the front page, but I’m sure they’ll be under greater
scrutiny by regulators for a while.”

Anthony Sabino, a professor of law at the Peter J. Tobin
College of Business at St. John’s University in New York, said
the decision to settle was “a business decision -- they want to
put this in the rearview mirror.”

“The shoe that I am waiting to see drop is what will the
feds do next?” Sabino said. Lawsky’s actions “might push the
federal authorities to give Standard Chartered more than a
perfunctory slap on the wrist.”

Beyond the Standard Chartered case, Lawsky’s go-it-alone
gambit may complicate future bank investigations and
settlements, said one former prosecutor.

“Ben Lawsky hijacked the feds’ case,” said Rita Glavin,
now an attorney at Seward & Kissel LLP. “That kind of move
causes a major headache for the Justice Department. Before, they
may have been more willing to share with a state regulator. They
may not be so willing in the future.”